Homeowners find much to appreciate / Despite rising interest rates, sales and prices in the Bay Area rocket to new highs. How high? The annual increase in the median home price now tops the region's typical household income.

home16_0046_el.JPG
Open house at 3573 22nd St. listed by John Abbott.
Kevin McCleod, talks with realtor Eileen Bermingham during a open house he listed at 149 State Street, San Francisco
DataQuick releases monthly home sales report on Friday (4/15). We head out into the belly of the beast -- homes for sale in central SF -- to try and chat and photograph some buyers on the prowl.
Depending on what we find there, we may go to a few other open homes, such as:
2317 15th St. X-street: Castro (also open from 11-12:30)
3573 22nd St. X-street Church (open 11-12:30)
556 Ashbury St. X-street Haight (open 9-6)Event on 4/12/05 in San Francisco. Eric Luse / The Chronicle Ran on: 04-15-2005
Would-be home buyers check out a house on 22nd Street in San Francisco. less

home16_0046_el.JPG
Open house at 3573 22nd St. listed by John Abbott.
Kevin McCleod, talks with realtor Eileen Bermingham during a open house he listed at 149 State Street, San Francisco
DataQuick releases ... more

Photo: Eric Luse

Image 2 of 5

home16_0011_el.JPG
Kevin McCleod, talks with realtor Eileen Bermingham during a open house he listed at 149 State Street, San Francisco
DataQuick releases monthly home sales report on Friday (4/15). We head out into the belly of the beast -- homes for sale in central SF -- to try and chat and photograph some buyers on the prowl.
Depending on what we find there, we may go to a few other open homes, such as:
2317 15th St. X-street: Castro (also open from 11-12:30)
3573 22nd St. X-street Church (open 11-12:30)
Event on 4/12/05 in San Francisco. Eric Luse / The Chronicle MANDATORY CREDIT FOR PHOTOG AND SF CHRONICLE/ -MAGS OUT less

home16_0011_el.JPG
Kevin McCleod, talks with realtor Eileen Bermingham during a open house he listed at 149 State Street, San Francisco
DataQuick releases monthly home sales report on Friday (4/15). We head ... more

Photo: Eric Luse

Image 3 of 5

The Numbers Say It All. Chronicle graphic by Todd Trumbull

The Numbers Say It All. Chronicle graphic by Todd Trumbull

Image 4 of 5

Bay Area Home Prices Rise in March. Chronicle Graphic

Bay Area Home Prices Rise in March. Chronicle Graphic

Image 5 of 5

Homeowners find much to appreciate / Despite rising interest rates, sales and prices in the Bay Area rocket to new highs. How high? The annual increase in the median home price now tops the region's typical household income.

1 / 5

Back to Gallery

Forget the stock market or working for a living. Homeowners in the Bay Area made more money last year simply occupying their lofts, townhomes and suburban tract houses.

At least on paper.

The numbers say it all: Between February and March, the median price for a single-family house jumped $36,000, or 6.3 percent. Over the last 12 months, it soared $106,000, or 21 percent, hitting $605,000 in March.

That appreciation far exceeded the $74,124 the typical Bay Area household earned last year, according to Economy.com. And it certainly outpaced the stock market, which is down 4 percent in the last 12 months. If you'd bought a 10-year government bond on March 31, 2004, you would have received about 3.9 percent in interest in the last year.

13th murder attributed to East Area Rapist/Golden State Killer suspect Joseph DeAngeloMedia: Tulare County District Attorney's Office

Lost in the FireMedia: Guy Wathen

Alameda County Fire Department video of a small plane that landed on the highway in HaywardMedia: Alameda County Fire Department

Food truck robbery in Los AngelesMedia: San Francisco Chronicle

CHP gives update on death of Officer Kirk GriessMedia: CHP Solano

The greatest moments in Bay Area sports historyMedia: Drew Costley/SFGATE

Despite a spike in interest rates earlier in the year, home sales and prices across the region reached new peaks last month, driven by robust demand and a tight supply of properties on the market, a real estate information firm reported Thursday.

While the median price for a detached home vaulted across the $600,000 barrier for the first time, a total of 11,310 houses and condos changed hands, the highest tally for any March going back to 1989 and 2.7 percent above the sales count of March 2004, according to La Jolla's DataQuick. The 12-month increase of $106,000 is the largest gain in the firm's records, which go back to the late 1980s.

Some experts say the big price jumps have added a speculative element to the real estate market, even as recent buyers count the increases as money they have "made," despite the fact that they can't realize that gain until they sell the property. Another indication of that mind-set is that 3 out of 5 home buyers in San Francisco are resorting to interest-only mortgages, which rely solely on price appreciation to boost equity.

Rod Gabriel feels he made the right choice to buy, despite sky-high prices. Gabriel, 35, bought a two-bedroom home in East Oakland 15 months ago for $315,000. In January, it was appraised at $410,000.

"You pay the bills and (the value) goes up. It almost seems too good to be true," said Gabriel, noting that the $95,000 in appreciation surpasses his income as a marketing writer for a San Francisco bank.

Economists worry, however, that the second part of Gabriel's adage may apply to uber-expensive markets like the Bay Area. Specifically, they cite the large percentage of risky interest-only loans in the market -- 62 percent of total loans in San Francisco last year, according to market researcher LoanPerformance.

Such mortgages are attractive because the monthly payments during the initial period are much lower than fixed-rate loans. However, during that period, buyers who elect to pay just interest accrue equity only if the home's value appreciates. What's more, payments can leap much higher when the initial interest-only payment period ends and the borrower must begin paying principal.

For example, Marco Van Akkeren, an economist at PMI Mortgage Insurance Co. in Walnut Creek, has studied the potential impacts of rising rates on borrowers who use interest-only loans to buy a median-priced home in the San Francisco-Oakland-Fremont area. According to his research, a borrower with 20 percent down and a three-year interest-only loan could see payments on a $646, 000 home skyrocket from $2,154 to $3,556, if the initial rate of 5 percent were to increase two percentage points to 7 percent at the first adjustment period. After another two-percentage-point adjustment, to 9 percent, the payment would be $4,951.

With such borrowers mortgaged to the max, an uptick in interest rates or a slowdown in the economy could put them in dire financial straights -- forcing them to sell or refinance to pricier loans.

The housing boom "has been sustained by drops in interest rates," said Van Akkeren in a recent interview. "If (an economic) shock were to occur, the housing market here is pretty vulnerable to price declines."

Such warnings appear lost, nonetheless, in the midst of the springtime real estate frenzy.

During a tour for real estate agents at a home in San Francisco's Noe Valley early this week, agent John Abbott feared he would exhaust his sheaf of 75 flyers as dozens of buyers' agents trouped through the creaky 1,200-square- foot Victorian listed for $1.25 million.

Abbott, a Prudential agent who works in the Alameda office, said more homes have come on the market in recent weeks. Still, he said, "the number of people looking is infinite, and the number of homes is finite."

But even those home sellers flush with cash find it difficult to trade up for a new property. Most homes in desirable areas fetch at least a handful of offers; and some, like a three-bedroom home on Winfield Street in Bernal Heights, garner more than two dozen and sell for at least $250,000 above the asking price.

"It's a Catch-22," Abbott said. "You can make a ton of money on your house, but you'll have to spend it all on the same type of house."

The largest price increase in the Bay Area came in Contra Costa, where the median for a detached home soared almost 29 percent in the last year to $535,000. At $918,000, Marin County had the highest median, which is the midpoint -- half of sales were above and half were below.

In San Francisco, the median was $746,000, almost 15 percent above the year-ago price of $649,000.

DataQuick's reports are based on filings with county recorders' offices and usually reflect sales initiated 30 to 60 days earlier.

As prices for run-of-the-mill dwellings in some parts of the Bay Area edge closer to the $1 million mark, however, some would-be buyers are walking away.

Margaret Chau, a retired legal assistant, and her husband, Bill Cummings, looked for a home in San Francisco for six months before deciding in March to throw in the towel. The couple, who watched homes sell for $200,000 above their asking prices, will continue to rent and use the money they would have put toward a mortgage on travel.

"We've given up," said Chau, 50. "I said, my time is too valuable for this. I want to go to brunch with my friends on Sunday. I don't want to go to any more open houses."

Instead, Chau and Cummings may buy a weekend getaway in the Russian River area. Or, they may purchase a second condo in Chau's native Vancouver. They bought the first, a one-bedroom studio near the water, for about $120,000 two years ago.

There is growing evidence that those who gain a hold on the Bay Area housing market do so by their fingernails.

DataQuick's research shows the typical monthly mortgage payment that Bay Area buyers committed to in March was $2,566, an all-time high. In spite of an eight-week stretch of rising mortgage rates in February and March, however, sales and prices have remained strong.

DataQuick researcher John Karevoll theorizes the momentum will continue for some time -- as long as the benchmark 30-year mortgage rate remains below 7 percent. This week, the average rate for a 30-year fixed mortgage ticked down to 5.91 percent from 5.93 percent last week, according to mortgage giant Freddie Mac. The 30-year rate had inched above 6 percent in March.

"It's definitely rolling the dice -- but so far, the people who have rolled the dice have won," Karevoll said, adding that the mix of homes sold in the market remained stable, reflecting a healthy market.

Van Akkeren, the economist, isn't so sure it will always be a good bet. In studies, he has calculated the chances that home prices will decline, based on household incomes, unemployment and home prices. Currently, the San Francisco-Oakland-Fremont area has a 48 percent chance that home values will decrease during the next two years, Van Akkeren found. San Jose's risk stands at 53 percent.

But Gabriel, like many invested in the market, downplays the possibility of a downturn.

"I don't see a lot of risk," said Gabriel, who is in the midst of buying a second home in Oakland for $633,000. "It might flatten out for a while, but it won't crash. It's not like my other property will go down to $215,000 or something."

The numbers say it all

$106,000

The amount the median price for a single-family house jumped in the past 12 months

$74,124

The typical Bay Area household's earnings

$36,000

The amount the median price for a single-family house increased from February to March